Economy improving; caution still prudent

By: Angie DeRosa

February 1, 2013

Last month, heads of nations convened in Davos-Klosters, Switzerland, for the annual World Economic Forum. The media overwhelmingly reported a sense of calm in the mountain resort town and in markets in general.

The world economy, it seems, has experienced the worst, but is fragile and gingerly making a comeback. For this year, the eurozone is expected to see a decline in gross domestic product, while emerging markets will see 5 percent growth and China will see better than 8 percent growth.

But risks of relapse and complacency lead Christine LaGarde, managing director of the International Monetary Fund, to encourage the "do not relax" principle. "Tools that are in the toolbox have to be operational," she remarked during a panel discussion on the ways in which nations have to steer monetary and fiscal policies.

For example, the United States has seen growth pick up and it is continuing to move at a reasonable pace. In the third quarter of 2012, U.S. GDP expanded 3.1 percent compared with the second quarter's 1.3 percent. But, as evidenced by GDP contracting 0.1 percent in the fourth quarter — the first time in three years — the United States has to be savvy with medium-term decisions on its debt trajectory, for example, to guide it through its fragile state.

Emerging markets will have to rebalance their business models to gear for more domestic consumption and less reliance on exports.

A more aggressive approach has been taken by Japan, where officials issued a statement Jan. 22 on overcoming deflation and achieving sustainable economic growth. Its three-prong approach includes bold monetary and flexible fiscal policies with an eye on revitalized economic growth. Those revitalization efforts include concentrating resources on R&D, strengthening the country's foundation for innovation, carrying out bold regulatory and institutional reforms and making better use of the tax system.

If you weren't able to catch any of the coverage from the WEF, it's worth trying to do some catch-up. At this website, weforum.org/events/world-economic-forum-annual-meeting-2013, you can check out all that is available including podcasts, blogs and videos. Separately, be sure to check out the Technology Pioneers, those companies identified as such for the WEF.